Delta Air Lines would be allowed to terminate its pilots' pension plan under an agreement announced on Monday, clearing a significant hurdle in its bid to restructure and exit bankruptcy next year.
Delta said the Pension Benefit Guaranty Corp (PBGC), the federal agency that insures corporate pensions, would become trustee for the pilots' pension plan under the agreement which must still be finalised by the PBGC and approved by the US Bankruptcy Court for the Southern District of New York.
The airline also pledged to preserve pension accounts covering 90,000 non-union workers and retirees, including flight attendants, when it steps out of court protection. The pilots are the airline's only major unionised work force.
Delta hopes to emerge from bankruptcy in the first half of 2007. Its management is working on a reorganisation plan to emerge as a stand alone company and opposes an unsolicited $8.5 billion offer from US Airways Group Inc.
Legislation enacted this summer gave Delta and Northwest Airlines, also bankrupt, substantially more time to meet pension obligations as a way of discouraging them from terminating plans, which companies are permitted to do under certain conditions in restructuring.
US Airways and United Airlines both terminated employee pension plans in bankruptcy. Delta said in advance of the pension law overhaul that it could not afford the deficit-ridden plan for current and retired pilots.
When the PBGC takes over pension plans, not all beneficiaries receive the full amount of their promised benefits. Pension payments by the PBGC are funded by remaining plan assets, investment income, premiums, and bankruptcy recoveries like the deal struck with Delta.
The PBGC will receive an unsecured claim of $2.2 billion when Delta emerges from bankruptcy, representing the gap between assets and promised benefits of the pilots' plan, plus the amount the company should have contributed since its September 2005 bankruptcy filing.
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